Next Gen Console Winner Is IBM

Via Joystiq, an article on the Seattle Times points out what many of us have already known: IBM is the real winner of the console war. The company is providing chips for all three consoles, and is busily crafting money hats for everyone involved. From the article: "Using the engineering consulting work it did for Microsoft, Nintendo and Sony as a model, IBM has formed a new 'technology-collaboration solutions' unit that's expected to post $4 billion in revenue this year. Internal projections call for that division to hit $10 billion by 2010 and $20 billion by 2015. Those targets may sound high for a $91 billion company that is barely able to grow overall revenue. But hardware-division chief William Zeitler hopes to achieve them by replicating IBM's video-game collaborations in such industries as telecom, defense and medicine."

Comments

Don't Forget the Silicon

[eldavojohn]

Yeah, IBM did win. But every time a technological war is waged between two competitors in the United States, the default winners are the companies in the Philippines and other silicon producing countries. I mean, there's probably a lot of companies with really bland names that jump for joy when this stuff happens. IBM is cashing in but I'm sure everyone along the way from basic elements to full fledged product enjoys it too.

Re:Don't Forget the Silicon

[stevesliva]

But every time a technological war is waged between two competitors in the United States, the default winners are the companies in the Philippines and other silicon producing countries.

Sort of true. TSMC in Taiwan is a big winner, being the foundry for the ATI and Nvidia GPUs, while Chartered in Singapore has been doing great as a second source for the XBox chip, the original source being IBM's East Fishkill fab. However, the Cell chip is made by IBM in East Fishkill and Sony in Nagasaki. The Wii chip is made by IBM in East Fishkill. The GPU in the XBox also a second die in the package fabbed by NEC in Japan. But no doubt there's a number of other chips from foundries and IDMs all over.

Re:Don't Forget the Silicon

[servognome]

Its not an either/or situation though. BlandName Ltd. supplies silicon for IBM, they make money. Samsung asks them to supply them with silicon, they do, so they make even more money. Just because IBM gets silicon off them doesn't mean Samsung won't. Where, exactly is the zero-sum part?

Base material suppliers are typically selling to everybody in the industry. It doesn't matter if IBM or Samsung or AMD chips inside those consoles, its all coming from the same silicon, that's the zero-sum.
For example in the LCD market, there are only 3 or 4 major panel makers. In the 20" display market, if Apple captures marketshare away from Dell, the panel manufacturer doesn't gain, because both companies use the same panel.

Cute-A love connection?

[Anonymous Coward]

"In the meantime, my PS2, GameCube, and PC will "hold" me in terms of gaming."

Would you like a quiet moment alone?

Re:What about if Sony botches the PS3?

[cmdrpaddy]

Hardly. Anyone that knows IBM made the chips will probably already be aware that it was Sony that screwed up, not IBM. Anyone else who knows that Sony screwed up more than likely wont know that IBM made the chips in the first place.

Re:To be literal

[Klintus Fang]

not even that.

the real point as I see it (and as the article states), is that IBM is leveraging the experience they have working with the console makers to solve their technical design problems to make a business unit that will pursue the same kinds of collaborations in telecom and elsewhere. it's not about selling the chips. It's about selling the technical expertise that is required to design products that use those chips.

nobody wins big by manufacturing the components that go into the console. "winning the micro-chip wars for non-PC gaming" is not much of a victory at all. The console makers sell those things at a loss for the most part, which means they nickel and dime their component suppliers to death on the costs. If you provide the chips (gpu/cpu), you win bragging rights, but that is about it. From a pure profit perspective you'd be much better off selling those chips to the non-console market where the profit margins on hardware are higher.

It's not about the chips. I think that probably works well for IBM's business model. I've never quite been able to figure out exactly how IBM operates, but they don't seem interested in making profits on hardware sales (not primarily anyway). They seem interested in making profits on selling high end technical services to other businesses.

Re:To be literal

[Captain Splendid]

I thought the pedant's meeting wasn't until tommorow?

Re:The real losers are the gamers...

[Kirin Fenrir]

Growing game budgets have been to blame for this. Final Fantasy XII, for example consumed $35 million in production costs.
Now, not all titles use that much, but $20-$30 million dollar game budgets are not uncommon anymore.

Apple.

[CDPatten]

Anyone else notice Apple leaving IBM hasn't made a blip in their profits? They really haven't skipped a beat.

In fact, since Apple went to intel chips, it almost seems like IBM has been able to expand and focus on other chips projects like the gaming systems. It seems like getting rid of Apple was a pretty good thing for them.

PS
go ahead I'm ready... let the Apple loving flaming begin.

Re:Apple.

[pilkul]

Speaking of which, I've always been confused as to why Apple decided it could get better performance with Intel instead of IBM, whereas Microsoft at the same moment made the exact opposite switch with the Xbox. What the heck is going on here? Anyone know a good reason?

Re:Apple.

[Wesley Felter]

Performance for games and performance for media apps are not the same thing. And performance is not the only consideration for a console. There are rumors that MS wanted to own their chip designs, which was not an option for Intel processors. Also consider power, cost, customizability, etc.

Re:Apple.

[ravyne]

There are plenty of good reasons. On the Apple side: Firstly, much of the reason that Apples machines were comparably expensive for so many years was that they had to do alot of design work on their own. Motherboards, Chipsets, etc. Intel provides them with all those things now as a package deal. Secondly, it helps to open up a wider spectrum of parts suppliers, there's nothing ruling out an AMD-based Mac if AMD can provide a compelling offer, for instance. Most importantly, was the future roadmap that IBM is planning for PPC; namely, the lack of laptop and desktop centric chips. When Apple went to IBM for the G5, they basically had to offer enough business to IBM to make it worth their while in modifying the Power4 architecture to be suitible for the desktop. Frankly, Apple didn't sell enough G5s for IBM to bother working with them going forward when they could allocate the same resources to make more money in other sectors by concentraiting on their embedded, server, and client-customized Power chips. On the Microsoft Side: Firstly, Microsoft decided that IBM could provide them the best bang for their buck. The fact that IBM's offer was PPC architecture was of little consequence. Because they were building the whole console, they could simply build the other components to order around whatever CPU they ended up with. The primary concern with consoles is being able to reduce the cost of components over time so that the hardware is profitable, or at least breaks even, before it's run is over. Mostly, the key here is to keep the die size small. An x86 design likely wouldn't have given the same performance / die size. The most important aspect of the IBM deal, though, was the fact that Microsoft essentially "owns" the Xenon CPU design for future use with respect to the xbox console. This means that they can take the design to other fabs if they can do it cheaper than IBM, or that they can integrate the CPU into silicon for the next system to help with backwards compatibility for instance (of course they'll still likely have to pay IBM an aditional liscense fee/royalties for new products.) The x86 companies hang on very tightly to their liscenses, and I dare say that it might have costed more to liscense x86 than to develop Xenon with IBM. That said, Microsoft did look at the possibility of an x86 360 using both AMD and intel parts. The also looked at integrating an x86 into the PPC-based 360 as a secondary processor for backwards compatibility purposes. A design built around a lowish-speed (1.8-2.0 ghz) Core Duo, or Core 2 Duo would have been nice, but I don't think that Intel would match IBM's price (I've heard ~100 USD, give or take) and they certainly wouldn't have liscensed the design to microsoft or allowed non-intel fabs to produce it.

Re:What about if Sony botches the PS3?

[mrvis]

If the PS3 does poorly enough, then either the 360 or the Wii will be a smashing success.

Someone will look good at the end of it. And then IBM can say they helped.

Re:To be literal

[poot_rootbeer]

I thought the pedant's meeting wasn't until tommorow?

You mean "pedants' meeting."

Yes, you said it... just like everyone else

[norminator]

I think there's already been more than one headline on Slashdot previously and on digg that says almost exactly the same thing... IBM is the real winner. But it's not like it's a big story... if it is, then who's the loser? Intel? AMD? Do they really care that they aren't in the consoles? Not as far as I've heard. They're more worried about chasing the living room PC. (Even though I think they'd get into more living rooms with consoles, but I guess it's more work to design a new console processor than it is to make up a silly meaningless standard for "media" PCs... let the marketing staff do the work, instead of paying engineers to make a product.)

Reducing porting time.

[Ayanami Rei]

No, I'm not kidding. It encourages ports of games developed for other next-gen platforms to the XBox 360, and it gives developers a warm fuzzy to aim for the 360 as their baseline target, and then tweak it to run on the Cell and/or Dolphin platforms.

If we want to talk about "who are the winners here?", I'd have to say it's the developers!